Lord Advocate v Butt
| Jurisdiction | Scotland |
| Judgment Date | 20 December 1992 |
| Date | 20 December 1992 |
| Court | Court of Session |
Court of Session (Inner House).
Lord Justice-Clerk Ross, Lord Wylie and Lord Morison.
G N H Emslie QC and P S Hodge (instructed by the Solicitor of Inland Revenue) for the Crown.
Colin Tyre (instructed by John G Gray & Co) for the taxpayers.
Income tax - Time limit for commencement of proceedings for recovery of tax - Claims by Revenue for tax due and interest - Whether claim for interest accruing more than five years before commencement of proceedings defeated by prescription - Taxes Management Act 1970 section 69Taxes Management Act 1970, sec. 69 - section 6 subsec-or-para (1) schedule 1 subsec-or-para 1Prescription and Limitation (Scotland) Act 1973, sec. 6(1), Sch. 1, para. 1(a)(i).
This was a reclaiming motion by the Revenue appealing against a decision of the Outer House of the Court of Session ([1991] BTC 59)that interest on unpaid tax accruing five years or more before commencement of proceedings for recovery of tax fell within the section 6 schedule 1 subsec-or-para 1Prescription and Limitation (Scotland) Act 1973, sec. 6 and Sch. 1, para. 1(a)(i) and was not recoverable.
In October 1989 the Revenue sued for the balance of tax due from the taxpayers for the years 1979-80 to 1981-82. The taxpayers defended the action on the ground that under section 6 subsec-or-para (1)sec. 6(1) of and schedule 1Sch. 1 to the 1973 Act the sums claimed, which had subsisted without any claim or acknowledgment for a continuous period of five years, were not recoverable. The Outer House of the Court of Session held that section 6 subsec-or-para (1)sec. 6(1) of the 1973 Act did not apply to principal sums owing for tax but that, by virtue of schedule 1 subsec-or-para 1 section 6 subsec-or-para (1)Sch. 1, para. 1(a)(i), sec. 6(1) did apply to a claim for interest accruing five years before commencement of proceedings. schedule 1 subsec-or-para 1Paragraph 1(a)(i) provided that section 6sec. 6 applied to any obligation to pay a sum of money due in respect of a particular period by way of interest.
The taxpayers contended that interest on tax due was no different from any other debt. It accrued from day to day. The relevant "particular period" was a single day and there was a series of obligations, each for one day.
Held, granting the reclaiming motion:
A claim for interest on overdue tax was not a distinct and separate claim to which section 6sec. 6 of the 1973 Act might apply by virtue of schedule 1 subsec-or-para 1Sch. 1, para. 1(a)(i) but was a claim for part of the principal sum as tax due. Proper weight had to be attached to Taxes Management Act 1970 section 69sec. 69 of the Taxes Management Act 1970 which provided that interest on overdue tax should be treated as if it were tax charged and due and payable under the assessment to which it related.
Moreover, the method by which interest on overdue tax was calculated did not define a particular period. It imposed an obligation to pay interest for an indefinite period, which could not be regarded as a "particular period" within schedule 1 subsec-or-para 1Sch. 1, para. 1(a)(i) of the 1973 Act.
Lord Justice-Clerk Ross: In this action the Lord Advocate on behalf of the Commissioners of Inland Revenue sought payment from the defenders of tax and Class 4 contributions under the Social Security Act 1975. In the first conclusion payment was sought of income tax remaining payable and unpaid with interest thereon from 6 July 1989. In the second conclusion the pursuer sought payment of a sum in respect of interest from the reckonable dates to 6 July 1989, and in the third conclusion the pursuer sought payment of the Class 4 contributions. In their defences the defenders included two pleas-in-law No. 4 and 6 which raised the issue of prescription. The pursuers had a sixth plea-in-law to the effect that the defences were irrelevant and lacking in specification and should be repelled, and decree pronounced de plano. After sundry procedure the Lord Ordinary on 21 November 1990 pronounced an interlocutor sustaining the sixth plea-in-law for the pursuers to the extent indicated in his opinion. He proceeded to grant decree against the defenders in terms of the first conclusion, the third conclusion, and in respect of part of the second conclusion. The summons had been served on 9 October 1989, and the restricted sum for which decree was pronounced in terms of the second conclusion represented the interest due from 9 October 1984 to 6 July 1989, that is for a period commencing with the date five years before the action was raised. Against that interlocutor of the Lord Ordinary the pursuer has reclaimed. No reclaiming motion was made by the defenders and no cross appeal was put forward on their behalf.
Accordingly the sole issue raised in this reclaiming motion is whether on a proper construction of the Prescription and Limitation (Scotland) Act 1973 Parliament intended to apply the short negative prescription of five years to claims for interest on unpaid tax. Counsel for the pursuer pointed out that claims for interest on unpaid tax were not subject to any short negative prescription prior to the passing of the 1973 Act. They also contended that principal sums due as tax were not subject to any short negative prescription either before or after the Act of 1973 had come into force, and that they were not liable to any limitation under the law of England. In these circumstances they contended that the Lord Ordinary had erred in holding that interest on unpaid tax was subject to the short negative prescription.
Before this court counsel for the pursuer put forward four principal submissions. The first submission was that before 1973, a taxpayer's obligations to pay tax, penalties and interest on unpaid tax were not subject to prescription, and that there was nothing in the wording of the Act of 1973 to show that Parliament intended to innovate by making these obligations subject to the short negative prescription. The second submission was that the court will not favour a construction of an Act which will give rise to an anomaly in the recovery of taxation between Scotland and other UK jurisdictions whereby a claim to tax would be cut off in one jurisdiction but not in the other. The third submission was that holding that interest on unpaid tax is subject to the short negative prescription rests ill with some provisions of the Taxes Management Act 1970 and is inconsistent with other provisions of that statute. The fourth submission was that in any event the reference in schedule 1 subsec-or-para 1Sch. 1, para. 1(a)(i)to the 1973 Act to a sum of money due by way of interest does not, on a proper construction, cover interest on tax.
Although counsel developed all these submissions before the court in detail and with considerable skill, I do not find it necessary to express an opinion upon all the issues raised. In dealing with the claim for interest, the Lord Ordinary recognised that interest on unpaid tax did not fit precisely into what is laid down in schedule 1 subsec-or-para 1para. 1(a)(i) of Sch. 1 to the 1973 Act. However, he held that claims for interest were plainly intended to be subject to the five year prescription and he accordingly decided in favour of the defenders apparently on the view that since interest accrued from day to day, the interest in respect of a particular day fell to be treated as prescribing when the obligation to pay that interest had subsisted for a continuous period of five years.
The relevant statutory provisions appear in section 6 schedule 1sec. 6 and Sch. 1 to the Prescription and Limitation (Scotland) Act 1973. section 6Section 6 provides inter alia as follows -
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(2) If, after the appropriate date, an obligation to which this section applies has subsisted for a continuous period of five years -
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(a) without any relevant claim having been made in relation to the obligation, and
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(b) without the subsistence of the obligation having been relevantly acknowledged, then as from the expiration of that period the obligation shall be extinguished:
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(3) Provided that in its application to an obligation under a bill of exchange or a promissory note this subsection shall have effect as if section 6 subsec-or-para (1)paragraph (b) thereof were omitted.
(4) schedule 1Schedule 1 to this Act shall have effect for defining the obligations to which this section applies.
(5) In section 6 subsec-or-para (1)subsection (1)above the reference to the appropriate date, in relation to an obligation of any kind specified in schedule 2Schedule 2 to this Act is a reference to the date specified in that Schedule in relation to obligations of that kind, and in relation to an obligation of any other kind is a reference to the date when the obligation became enforceable.
schedule 1Schedule 1 is headed "Obligations Affected By Prescriptive Periods Of Five...
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Spring Salmon & Seafood Ltd
...obligation did not prescribe under s6 of the 1973 Act (p. 252). In the second (Lord Advocate v ButtTAX[1991] BTC 59 (Lord Prosser) and [1992] BTC 67 (Second Division)), the action was for payment of tax and NIC and interest on the unpaid tax. The Lord Ordinary held that s6 applied to intere......